Sandpiper acquires 10-per-cent stake in Dream Office

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Sandpiper Group said it has taken a 10-per-cent stake in Dream Office REIT, as the private-equity company seeks exposure to the booming office market in Toronto.

Sandpiper is known as an activist investor that agitates for change at the top of publicly traded real estate companies. On Thursday, Sandpiper expressed confidence in Dream Office Real Estate Investment Trust’s management team, saying it had the “foresight" to divest its office buildings in Alberta and focus on downtown Toronto. Since Dream started winding down its Alberta portfolio in early 2017, its value has increased 80 per cent to $35 per unit today.

“We are supportive of management and the board and their strategy,” said Samir Manji, Sandpiper’s CEO. Mr. Manji said that his private-equity company was not seeking board seats or new leaders.

Mr. Manji said Sandpiper started buying Dream last summer when it was trading around $24 per unit. By the fall, Sandpiper had amassed a 9-per-cent stake in the trust. On Thursday morning, Sandpiper acquired 372,000 units of Dream at an average price of $34.94 per unit, pushing its ownership to just over 10 per cent, a threshold that must be disclosed under securities laws.

Sandpiper said it has now spent more than $150-million on its entire investment in the Toronto office landlord.

Mr. Manji said the trust is grossly undervalued. The private-equity company looked at recent office-building transactions in downtown Toronto and said they sold for between $700 per square foot to $1,100 per square foot. In comparison, Dream’s offices, many of which are in better locations, were valued for much less, according to Sandpiper.

Mr. Manji believes Dream is worth at least $42 to $48 per unit. When asked if he would become more active in the trust if Dream’s units failed to hit that level, Mr. Manji said it is in the company’s hands as to what it chooses to do.

Dream owns 32 office buildings, most of which are in Toronto, where rock-bottom vacancy rates have been driving up rental rates and spurring development. The trust is redeveloping some of the buildings, including several in the financial district and one that has been leased to beleaguered office-sharing company WeWork.

Mr. Manji said Sandpiper was interested in acquiring a larger stake in Dream. “We see substantial runway for outperformance from rent growth,” he said.

Dream chief executive Michael Cooper said he agreed with Sandpiper’s thesis and declined to provide further comment.

Mr. Manji founded Sandpiper in 2016 after working for more than two decades in commercial real estate and selling his retirement-living company to the Ontario Teachers' Pension Plan.

The private-equity company became known in the industry after it launched a proxy fight at industrial property company Granite REIT in May, 2017, and won support from influential proxy advisers for its slate of directors.

Since then, Sandpiper has pushed for change at other publicly traded entities including Artis, Extendicare, Agellan and Hudson’s Bay Co.

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